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Darden Restaurant stock falls on downbeat profit view

Darden Restaurant stock falls on downbeat profit view

Darden Restaurants (NYSE: DRI), the owner of the Red Lobster and Olive Garden restaurant chains, saw its shares fall Tuesday after a downbeat outlook for the year.

For the second quarter that ended November 25, the company said it expects earnings per share from continuing operations of between 25 to 26 cents. Costs associated with the purchase of Yard House impacted its earnings by around 5 cents, it added, while Hurricane Sandy hurt its bottom line by one cent. 

The company was expected to earn 46 cents a share, according to a survey by FactSet.

Shares slid more than 10 per cent to $47.13 this afternoon.

The company also expects U.S. same restaurant sales for the second quarter to fall 2.7% for its Red Lobster, Olive Garden and LongHorn Steakhouse chains. It expects to release final results for the second quarter on December 20, before market open.

"Our second quarter is an especially value sensitive time of year, and this year's promotional offers were largely consistent in nature with what we've promoted successfully in the past," said chairman and CEO Clarence Otis. 

"These promotions did not resonate with financially stretched consumers as well as newer promotions from competitors. Our disappointing results for the quarter point to the need for bolder changes in the promotional approach at our three large brands.

"In light of these upcoming changes, we are being cautious about our sales and earnings forecast for the full year."

The company said it anticipates total sales growth of between 7.5 and 8.5 per cent for the year, based on U.S. same restaurant sales growth of around negative one percent to flat for its three biggest chains. It also expects earnings of $3.29 to $3.49 per share, which includes 10 cents a share in closing costs. 

Analysts estimated 2013 earnings of $3.87 a share for Darden.

"Our outlook for the year also reflects the potential impact, though difficult to measure, of recent negative media coverage that focused on Darden within the full-service segment and how we might accommodate healthcare reform," said Otis. 

Darden Restaurants owns and operates more than 2,000 restaurants that generate $8.0 billion in annual sales. Headquartered in Orlando, Florida and employing more than 185,000 people, its restaurant brands include Red Lobster, Olive Garden, LongHorn Steakhouse, The Capital Grille, Bahama Breeze, Seasons 52, Eddie V's and Yard House. 

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